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The Health and Human Services Office of Inspector General (OIG) has recently issued advisory opinions approving two arrangements that, despite their potential for health care fraud and abuse, promote efficiency and consolidation of services and were appropriately structured to avoid financial incentives for patient referrals. The two opinions, coming just a week apart, may suggest a trend of tolerance in an otherwise vigorous health care fraud enforcement environment for arrangements that reduce costs through efficiencies among providers and appropriately address potential abuse.

Advisory Opinion 10-13 (August 31, 2010). The OIG considered a program whereby a hospital would provide free pre-authorization services for referrals of diagnostic imaging (e.g., MRI). Under the arrangement, when an order for diagnostic imaging requires authorization by the patient's insurer, or Medicare/Medicaid HMO, the hospital will perform the administrative tasks necessary to obtain such authorization.

Although the OIG generally frowns upon providing free administrative services to referral sources, it decided not to impose sanctions against the requesting hospital in this case. The OIG noted that the free pre-authorization services were not targeted to valuable referral sources, but were open to all parties making such referrals to the hospital; the hospital made no payment or guarantee of reimbursement; the services would be provided transparently with full disclosure of the hospital’s role; and “importantly,” the program would serve a legitimate need to centralize the process of obtaining insurance authorization that would streamline operations and ultimately reduce costs.

Advisory Opinion 10-15 (September 8, 2010). The OIG considered a proposal by three principals of an academic medical center to form a joint venture in order to construct a new facility which would centralize numerous clinics and other health care service providers that are currently scattered throughout the campus of the University. The joint venture would be owned in equal shares by two principals of the academic medical center, a physician organization and the health system that operates the University Hospital; would lease real estate from the third principal of the academic medical center, the University; and would finance the construction of the facility through bonds and charitable contributions.

Although the OIG is generally suspicious of joint ventures created by parties in a position to refer patients to one another, such as a physician organization and health system, it ultimately approved the proposed arrangement. The opinion notes that the joint venture was, at its foundation, and effort between parties with long-standing affiliations to continue their clinical, research and teaching missions in a more efficient way; each joint venturer would make an equal contribution and no individual physician would be an investor; the employee physicians of the physician organization and health system, who would be referring to the facility, are paid base salaries that would not be impacted in any way by the volume or value of such referrals and would not receive distributions from the joint venture; the facility would have policies requiring referral to an alternate provider under certain circumstances; and the arrangement would reduce costs by eliminating duplication of technology, equipment and supplies; better accommodating the academic medical centers current patients; and permitting greater access to educational opportunities for medical school students in residence at the University.

While the OIG cites numerous factors in both opinions supporting its overall decisions, it notes the consolidation and efficiency grounds as “important" in the pre-authorization opinion and repeatedly cites them as justification for its approval of the academic medical center joint venture. Further, it is that factor — creating efficiencies within an otherwise fractured and duplicative process — which serves one of Obama Administration's over-arching goals for health care. From Accountable Care Organizations to Electronic Health Records, the current Administration has argued efficiency and consolidation are ways to create a sustainable health care delivery system. These two opinions show that the fraud and abuse arm of the government may take up this theme in its enforcement efforts by approving carefully structured arrangements that are designed to meet these overall goals.

In other news, the OIG, in Advisory Opinion 10-14 (September 9, 2010), approved an arrangement between a sleep testing provider and a hospital-owned sleep lab. The hallmarks of the agreement that the OIG noted in making its decision were that the transaction was structured as a legitimate “under arrangements” relationship in that the hospital was fully invested with space, supplies and personnel, including a medical director; the referring physicians had no interest in the sleep testing provider; the per-test fees were certified as being negotiated at arm's-length and fair market value; and the sleep testing provider’s fees were independent of the hospital’s reimbursement. The opinion highlights the importance of hospital investment and involvement in an under arrangements relationship with the OIG repeatedly noting the substantial contributions the hospital made in this case as justification for approving the venture.

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